Sponsored column: Investing to achieve an absolute return has been around for more than 60 years
However it is only since 2002 that European investors have been able to access absolute return strategies through authorised investment vehicles.
That year saw the EU’s UCITS III fund directive, which permitted hedge fund-type techniques to be used within regulated funds. Eight years on, funds adopting these strategies have moved further into the mainstream.
Absolute return investing seeks to target a positive return over a medium-term horizon, irrespective of market conditions. The majority of strategies take both long and short positions on stocks, asset classes or markets using derivative-based techniques.
The scale of market falls in the aftermath of the global credit crisis prompted a sharp spike in interest in these strategies. To date, Threadneedle has focused on absolute return bond funds and these attracted considerable interest from UK and European investors in the market downturn.
While markets have staged a strong recovery, a number of factors suggest absolute return investing will prove increasingly popular. An absolute return bond fund could appeal to more risk-averse investors who are unhappy with low returns on cash deposits.
Another consideration is the opportunity to diversify portfolios. Absolute return strategies display low correlation with overall asset class movements. For many older workers in defined contribution pension schemes, the ability to switch into an absolute return investment to help guard against market volatility could prove very attractive.
Absolute return funds can help moderate the impact of market weakness, but are likely to lag when markets are rising strongly. Consequently, a portfolio combining absolute return and relative return funds is likely to have a more attractive risk/return profile than one restricted to a single strategy, and can be adjusted to prevailing market conditions. Absolute return funds therefore represent a valuable investment tool.
Issued by Threadneedle Asset Management Limited, authorised and regulated by the Financial Services Authority. The research and analysis included in this document has been produced by Threadneedle for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Any opinions expressed are made as at date of publication but are subject to change without notice.
Column sponsored and supplied by Threadneedle Asset Management. www.threadneedle.co.uk.